UK Banks have once again mis-sold products, this time to small businesses, which have resulted in customers losing vast sums of money, their jobs, their businesses and even their homes. The Interest Rate Swap scandal is decimating small business across the country. Yet, when Chief Secretary to the Treasury Danny Alexander gave a speech before the British Banks Association this morning, he didn’t mention it once. In fact, he celebrated “our improved regulatory regime”.
The Latest Banking Scandal
Whilst the government has been busy directing public wrath at the 0.7% of benefit claims which are fraudulent, a far greater crime is being perpetrated by the high street banks, who have once more engaged in mis-selling on an industrial scale. The bulk of the mis-selling occurred over the three years 2005-8 and was carried out principally by RBS, Barclays, HSBC and Lloyds Banking Group.
Small businesses were told they could only receive a loan from the Bank if they took out an Interest Rate Swap, which the Bank advised would act as a hedge, protecting the customer from future rises in interest rates. The Swaps were sold to the customers as a mandatory insurance policy, protecting customer and bank from future risk. In reality, as interest rates were being kept artificially low as a matter of UK economic and monetary policy (which the Banks were well aware of) the Swaps actually meant small business making vastly higher interest payments – more money for the Bank. Furthermore, the Banks registered small businesses with Swaps as higher risk customers, and charging them a higher rate if interest on the loan. This double whammy of additional costs, in the midst of a stalled economy, proved fatal for tens of thousands of small businesses.
To give just one example of the toll this has taken on victims:
Kites Nursery – Barclays Bank told the Whelan family who run the nursery that they needed to take on the swap in order to get a loan to expand their nursery. They were told that if they ever wanted to extricate themselves from the Swap, they would be charged £12,500. As Interest Rates remained low and the swap and loan repayments increased as a result, the couple sought to withdraw from the swap. But Barclays told them the new price to leave was now £100,000. An impossible sum for a tiny business. Keith Whelan, speaking of the five years of near constant financial worry resulting from the matter told the BBC:
“I take tablets, antidepressants, beta blockers… diazepam. I have to sleep, because I can’t sleep with the worry.”
Kites Nursery is just one among as many as 40,000 small businesses who saw unsustainable losses as a result of the scandal.
On top of this, it banks who seized assets from stricken customers of the Interest Rate Swaps sold them, have later been using subsidiary arms of the bank to buy up the properties at knock down prices. Property Developer Chris Kashourides told Channel 4 News that after his property was seized by RBS in 2010, another arm of the Bank called West Register bought the property at auction for £415,000. Just four months later, it sold the same property for £1m. Mr Kashourides was forced to sell 25 more of his properties in this way after RBS suddenly gave him just seven days to pay off his overdraft in 2010, or face seizure of assets.
Rather than selling their customer’s appropriate and valuable products in order to grow and sustain their businesses, Banks have been wholesale selling inappropriate and costly products which have literally destroyed the businesses of their customers. Not happy with profiting once, the Bank has profited again by seizing the business assets when they collapse, and selling them on at twice the price.
Where is the Regulator?
In the face of such a large scale and blatant fraud – how can we best describe the reaction of the government and its shiny new regulator (The Financial Conduct Authority) in this era of tougher regulation? In a word: lamentable.
Back in January, the FSA (as it was then) undertook an initial investigation into 173 of the tens of thousands of cases coming in, finding 90% of the cases were victims of mis-selling. This means that of those 40,000 potential cases, 36,000 could result in a settlement in favour of the customers. One would think this would be a moment for the new Financial Conduct Authority, and government, so take a leading role and show the public times had truly changed. Instead, the government have been almost silent on the matter, and the FCA has behaved in the same mealy-mouthed and pedestrian fashion of its predecessor.
Far from court cases and prosecutions, the FCA has requested that the investigation into the scandal is managed by the very banks who committed it – with mere oversight by the regulator. This means that solicitors appointed by the Banks, will be questioning the victims and assessing whether further proceedings are necessary. Furthermore, after this matter has already trundled on for five years, of 30,000 cases so far lodged, only 33 have come to the point of resolution, with only 10 small businesses (0.03% of victims) accepting the offer of redress. Not a single compensation payment has yet been made.
Why? Firstly, the Banks dragged their heels while conducting the investigations of themselves. For example, the initial review of those 173 cases was supposed to complete last October, but was months late. Secondly, having had their own review find them liable to pay compensation, the Bank are fighting compensation claims through the courts.
“We are bitterly disappointed with the latest statement from the FCA. It should be there to look after us and is failing in that job, the banks are continuing to treat small businesses with contempt and it is letting them get away with it!
“They failed to set the rules at the beginning and put banks in the driving seat leading to a viciously slow resolution, abuse of trust and continued suffering by the victims.
“There needs to be instant restitution where a mis-sale has occurred, a stop to replacing toxic products with baby toxic products and a review of the definition of sophisticated investor, whereby 9,000 businesses find themselves excluded.”
The FCA have only, just days ago, even begun murmuring about the possibility of fining offending Banks thanks to relentless pressure from campaign groups and the victims involved
Nothing has changed. The Banking Sector continues its criminal behaviour, and even when it is caught, faces no serious repercussions. Far from being the advocates of the customers, it seems the FCA is merely a shock absorber for the Financial Services industry – doing just enough to release some pressure from the victim groups, with no exacting conditions placed on Banks to alter their behaviour or pay the true consequences of their actions.
All in it Together
According to the National Audit Office, The UK National Debt rose by £850bn as a result of the Bank Bailout. This is almost twice the nation’s total annual budget. For this amount, the UK could have funded the entire NHS (£106.7bn a year) for eight years , our whole education system for twenty years (£42bn a year) or provided two hundred years of Job Seekers Allowance (£4.9bn a year).
The Banks rigged the LIBOR rate for a decade up to 2008. This devalued pensions and savings by millions of pounds, and when the scandal broke they ended up with fines which didn’t dent the annual profits.
Banks were busy mis-selling Payment Protection Insurance to retail customers for over a decade before they faced any repercussions. Over 3 million people were affected and stand to claim up to £4.5bn. Just as with this case, the Banks were left in charge of settling claims and consequently did everything they could to avoid and minimise compensation payments.
Despite all of this, the FCA has to be nudged by tireless campaigners at every point along the road to obtain even a modicum of justice for their crimes, and the government is back giving speeches to the British Banking Association as if it were business as usual. It is on us to make a difference here. The cavalry isn’t coming. We are the cavalry. It is time to be our own relentless advocates for justice.
Don’t get angry, get involved!
Move Your Money – hit them where it hurts, right in their pocket. Get your money out of these banks.
Bully Banks – join and support Bully Banks
Positive Money – educate yourself. This is a great site where you can get plain speaking learning to demystify the jargon of our economic system and start making better decisions.
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